Culture and Commercial

December 6, 2017

Organizational culture is becoming an increasing area of focus for every business. As recent events have shown, the speed and power of social media activity demands heightened sensitivity and rapid response mechanisms. Shifts in social expectations (as well as global variations in those expectations) result in often unpredictable pressures that can instantly impact corporate reputation.

This challenging environment means that organizations must increasingly review their commercial policies and practices. For example, traditional measurement systems have often led to damaging behavior – whether it is placing unfair pressure on small suppliers or using unethical practices to win sales. Partnering programs and the selection of suppliers are also high risk areas, with potential ‘guilt by association’. In some cases, policies and practices are driven by regulation – for example, the use of conflict minerals or child labor. In others, it is about avoidance of possible litigation – for example, discrimination or sexual harassment. But there is also a growing need to exercise judgment on a wide range of decisions that impact organizational image and these, it is suggested, are in many ways best addressed through a clear and common ‘culture’ – a set of norms and values espoused by all employees.

There is current debate over where ‘cultural responsibility’ should reside. For example, given the frequent role that the General Counsel has over compliance issues, should they also be the ‘custodian of culture’? Ultimately, the tone may be set by the Board, but there needs to practical oversight and implementation.

It seems to me that there are two linked but distinct aspects to this topic. One is the internal manifestation of behavior and the other is external – the link to society and markets. It is this latter aspect that is especially relevant to commercial teams, who are in many ways uniquely placed to be making the sort of balanced judgments needed to manage reputational risk. Lawyers and the law are fundamental considerations in making ethical and reputation-enhancing decisions, but this is only one aspect. Recent incidents that are damaging corporate reputations are mostly not illegal – they are simply reflecting corporate values and cultures that are increasingly alien to societal norms. Trying to keep pace with those trends and making smart commercial decisions requires careful and inclusive analysis and counsel.

Twenty years ago, many corporations had powerful commercial groups with clear responsibility for business practices and ethical standards. The forces of globalization destroyed most of those groups because they were seen as an impediment to getting business done. Management focus shifted to ‘growth at all costs, ethics be damned’. Steadily, the world has come to realise that such approaches destroy environments, undermine society, drive inequality and dishonesty. So we are at a point where we need to rethink approaches to decision-making, ensuring that short-term expedients are not at the cost of longer-term interests. Perhaps that means appointing an ‘owner of culture’, but I suspect it is more about designing effective and streamlined review and approval processes that clearly include ‘social impact analysis’ as a core element of risk assessment.